Bullion hovered above $1,700 an ounce for most of September, but plummeted on Thursday after breaking through a technical support that had held since 2020.
US data pointed to robust retail sales and a strong labour market, raising expectations of more aggressive action by the Fed as it tries to ease inflation.
“We are below the crucial support area,” said Georgette Boele, an analyst at ABN Amro Bank.
“If it breaks, then the next level is $1,600 an ounce.”
The metal slid as much as 0.7 per cent on Friday as the dollar closed in on a record before rebounding to trade 0.6 per cent higher as of 3.36pm in New York.
Bullion for December delivery rose 0.4 per cent to settle at $1,683.50 on the Comex.
The focus is now on the Fed’s meeting next week, where many economists believe the central bank will raise interest rates 75 basis points.
There is a risk the hike could be even larger after US inflation data dashed hopes that price pressures may be moderating.
That could be a pivotal for gold, which is still holding up relatively well amid the recent surge in bond yields and the dollar.
There is some anxiety about a repeat of the 2013 crash, when prices dropped 14 per cent in two days after the Fed said it would slow its quantitative easing. That was matched by a similar surge in Treasury yields and the greenback.
But currently inflation is far higher and the outlook for growth much murkier, which tends to benefit bullion.
Outside the US, the economies of Europe and China are stuttering amid an energy crisis and tough measures to control the spread of coronavirus.
There is also the ever-present risk of a widening of the war in Ukraine, the onset of which sent gold to near a record in March.
The US central bank is also being aggressive with its monetary tightening, which may lead to a hard landing for the economy.
That has helped arrest this year’s slide in gold price as investors hold on to the haven as a hedge against a slowdown.
While hedge funds trading the Comex have pared back their bullish bets to the lowest in almost four years, money in exchange-traded funds is proving stickier.
ETF holdings are still up on the year and well above the levels seen before the pandemic began.